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On Medium, Nassim explains how once an intransigent minority reaches a tiny percentage of the total population, the majority of the population will naturally succumb to their preferences:

The best example I know that gives insights into the functioning of a complex system is with the following situation. It suffices for an intransigent minority –a certain type of intransigent minorities –to reach a minutely small level, say three or four percent of the total population, for the entire population to have to submit to their preferences. Further, an optical illusion comes with the dominance of the minority: a naive observer would be under the impression that the choices and preferences are those of the majority. If it seems absurd, it is because our scientific intuitions aren’t calibrated for that (fughedabout scientific and academic intuitions and snap judgments; they don’t work and your standard intellectualization fails with complex systems, though not your grandmothers’ wisdom).

The main idea behind complex systems is that the ensemble behaves in ways not predicted by the components. The interactions matter more than the nature of the units. Studying individual ants will never (one can safely say never for most such situations), never give us an idea on how the ant colony operates. For that, one needs to understand an ant colony as an ant colony, no less, no more, not a collection of ants. This is called an “emergent” property of the whole, by which parts and whole differ because what matters is the interactions between such parts. And interactions can obey very simple rules. The rule we discuss in this chapter is the minority rule.

The minority rule will show us how it all it takes is a small number of intolerant virtuous people with skin in the game, in the form of courage, for society to function properly.

This example of complexity hit me, ironically, as I was attending the New England Complex Systems institute summer barbecue. As the hosts were setting up the table and unpacking the drinks, a friend who was observant and only ate Kosher dropped by to say hello. I offered him a glass of that type of yellow sugared water with citric acid people sometimes call lemonade, almost certain that he would reject it owing to his dietary laws. He didn’t. He drank the liquid called lemonade, and another Kosher person commented: “liquids around here are Kosher”. We looked at the carton container. There was a fine print: a tiny symbol, a U inside a circle, indicating that it was Kosher. The symbol will be detected by those who need to know and look for the minuscule print. As to others, like myself, I had been speaking prose all these years without knowing, drinking Kosher liquids without knowing they were Kosher liquids.

Figure 1 The lemonade container with the circled U indicating it is (literally) Kosher.

Criminals With Peanut Allergies

A strange idea hit me. The Kosher population represents less than three tenth of a percent of the residents of the United States. Yet, it appears that almost all drinks are Kosher. Why? Simply because going full Kosher allows the producer, grocer, restaurant, to not have to distinguish between Kosher and nonkosher for liquids, with special markers, separate aisles, separate inventories, different stocking sub-facilities. And the simple rule that changes the total is as follows:

A disabled person will not use the regular bathroom but a nondisabled person will use the bathroom for disabled people.

Granted, sometimes, in practice, we hesitate to use the bathroom with the disabled sign on it owing to some confusion –mistaking the rule for the one for parking cars, under the belief that the bathroom is reserved for exclusive use by the handicapped.

Someone with a peanut allergy will not eat products that touch peanuts but a person without such allergy can eat items without peanut traces in them.

Which explains why it is so hard to find peanuts on airplanes and why schools are peanut-free (which, in a way, increases the number of persons with peanut allergies as reduced exposure is one of the causes behind such allergies).

Let us apply the rule to domains where it can get entertaining:

An honest person will never commit criminal acts but a criminal will readily engage in legal acts.

Let us call such minority an intransigent group, and the majority a flexible one. And the rule is an asymmetry in choices.

I once pulled a prank on a friend. Years ago when Big Tobacco were hiding and repressing the evidence of harm from secondary smoking, New York had smoking and nonsmoking sections in restaurants (even airplanes had, absurdly, a smoking section). I once went to lunch with a friend visiting from Europe: the restaurant only had availability in the smoking sections. I convinced the friend that we needed to buy cigarettes as we had to smoke in the smoking section. He complied.

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On facebook, Nassim recently posted the following statement about journalistic ethics in light of the current controversy over Hulk Hogan’s successful lawsuit for $140 million dollars against Gawker Media. Hulk Hogan was backed by tech billionaire Peter Thiel in his efforts:

PUTTING SKIN IN THE GAME OF JOURNALISTS
[CITIZENS vs GAWKER and CITIZENS vs JOURNALISM]

Journalists –as any guild, care about their peers and their community more than the general public. Except that we cannot afford to have such a community engage in a conspiracy against the laymen since they represent our interests, us the lay crowd; they are supposed to stand for the general public against inner circles of power. Journalism arose from the need to expose falsehood, take risks in exposing matters detrimental to the public; in short, counter the agency problem of the powerful. But, it is turning out, the journalism model can also work in the opposite manner: members have been effective in escaping having skin in the game –only whistleblowers and war correspondents currently do.

So one can see how this severe agency problem can explode with the Gawker story. The English tabloid machine came to the U.S. in full force with Gawker, founded by a firm that specializes in dirt on the internet. By dirt I don’t mean a fraudulent transaction abetted by some power: no, the kind of dirt that takes place in bedrooms (and even in bathrooms).

They sell voyeurism, predator voyeurism.

In other words they want to harm citizens by disclosing their private information and posting their videos without their permission in the interest of selling information. And without being accountable for it.

Gawker having posted a video of a celebrity having sex without his permission incurred a monstrous judgment of $140 million. The suit will bankrupt Gawker. Most of all, the judgment revealed that such a predatory business model will not survive, not because it is immoral, but because it has tail risks. For America has tort laws and a legal mechanism by which people harmed by corporations can be compensated for it –a mechanism that flourished thanks to Ralph Nader. It, along with the First Amendment protect citizens by putting skin in the game of the corporations.

Gawker is trying to make a First Amendment argument and unfortunately journos appear to find this justified –while normal citizens are horrified. Liberty in the thoughts of the founding fathers was not about voyeurism, but about public matters.

Gawker argued that because the person committing sex on the video they posted was a public person, that it became a “public” matter exempted from privacy protection. People failed to see that should that argument be true, then next someone spying on any public figure should be allowed to post their bedroom activity (including Hillary Clinton, Obama, anyone)… (Gawker has ruined the lives of 21 year olds posting their sex tapes and their reaction was outrageous; in one instance their lawyer Gaby Darbyshire e-mailed the woman who was in a revenge sex tape, defending the video as “completely newsworthy” and scolding her about how “one’s actions can have unintended consequences.”)

Peter Thiel, a billionaire with a vendetta against Gawker funded a law suit. Revenge motives perhaps, but this is how the market works: Gawker tries to make money therefore they need to live with the risk of someone trying to make money from their demise.

(You make money from the demise of a 21 yo, someone will make money from yours. You make yourself a vehicle for revenge porn; you become the subject of someone’s revenge. You engage in bullying someone financially weaker than you; someone stronger will bully you. There is no reason Gawker should be the only one to use asymmetry given that their very business is asymmetry against weak people–and this is general as the media is asymmetrically strong against citizens, what is commonly called “bullying” ).
I would have personally shorted Gawker (if they were publicly listed) to make money from their collapse. And I am ready to fund lawsuits against journalists who break some intellectual rules and distort people’s positions (strawman arguments).

Any journalist who supports Gawker in the name of the First Amendments fails to understand that they as a community are committing suicide because they are trivializing the reasons behind the First Amendment –and they make it conflict with other fundamental rights. And a corporation trying to warp our sacred values should go bankrupt. And anyone, like Peter Thiel, who accelerates such bankruptcy, should be thanked.

In its early phase, as the church was starting to get established in Europe, there was a group of itinerant people called the gyrovagues. They were gyrating and roaming monks without any affiliation to any institution. Theirs was a free-lance (and ambulatory) variety of monasticism, and their order was sustainable as the members lived off begging and from the good graces of townsmen who took interest in them. It is a weak form of sustainability, as one can hardly call sustainable a group of a people with vows of celibacy: they cannot grow organically and would need continuous enrollment. But their members managed to survive thanks to help from the population, which provided them with food and temporary shelter.

Sometimes around the fifth century, they started disappearing –they are now extinct. The gyrovagues were unpopular with the church, banned by the council of Chalcedon in the Fifth Century, then again by the second council of Nicaea about three hundred years later. In the West, Saint Benedict of Nurcia, their greatest detractor, favored a more institutional brand of monasticism and ended up prevailing with his rules that codified the activity, with a hierarchy and strong supervision by an abbot. For instance, Benedict’s rulesiii, put together in a sort of instruction manual, stipulate that a monk’s possessions should be in the hands of the abbot (Rule 33) and Rule 70 bans angry monks from hitting other monks.

Why were they banned? They were, simply, totally free. They were financially free, and secure, not because of their means but because of their wants. Ironically by being beggars, they had the equivalent of f*** you money, the one can get more easily by being at the lowest rung than by being member of the income dependent class.

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Over at The Market Oracle, James Quinn expands on Nassim’s idea (now widely circulating on social media) that votes for Trump (and to a lesser degree, Bernie Sanders) are emotion-drive votes to destroy the established order of government.

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More evidence that you are alive if & only if you like volatility. More evidence of Jensen’s inequality (convex response). This article passed my filter, my bi-monthly linking allowance. (via Steven Stogatz)

Yang H, Xu-Friedman MA.Department of Biological Sciences, University at Buffalo, State University of New York, Buffalo, New York 14260.

Release of neurotransmitter is an inherently random process, which could degrade the reliability of postsynaptic spiking, even at relatively large synapses. This is particularly important at auditory synapses, where the rate and precise timing of spikes carry information about sounds. However, the functional consequences of the stochastic properties of release are unknown. We addressed this issue at the mouse endbulb of Held synapse, which is formed by auditory nerve fibers onto bushy cells (BCs) in the anteroventral cochlear nucleus. We used voltage clamp to characterize synaptic variability. Dynamic clamp was used to compare BC spiking with stochastic or deterministic synaptic input. The stochastic component increased the responsiveness of the BC to conductances that were on average subthreshold, thereby increasing the dynamic range of the synapse. This had the benefit that BCs relayed auditory nerve activity even when synapses showed significant depression during rapid activity. However, the precision of spike timing decreased with stochastic conductances, suggesting a trade-off between encoding information in spike timing versus probability. These effects were confirmed in fiber stimulation experiments, indicating that they are physiologically relevant, and that synaptic randomness, dynamic range, and jitter are causally related.

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Philosopher-author of The Black Swan asks us to embrace uncertainty as a survival tactic

I had just finished Taleb’s latest book when Uttarakhand happened. And the phrase ‘unprecedented tragedy’ kept recurring like a bleak refrain. Nobody had been able to predict that the rainfall could be this heavy, the flooding this bad. Taro in Japan built a 34 ft sea wall the city called the Great Wall. It was swept away contemptuously by the 2011 tsunami.

This capriciousness — whether of nature, humans, or man-made systems — lies at the core of Taleb’s book, as he passionately and provocatively argues for modern man to learn and use non-predictive decision making, which can be the only safeguard in a world where, and let me grasp at a cliché here, the only thing that’s certain is uncertainty.

With the writer having made somewhat of a career in needling establishment gurus, the bankers, academics, economists and other suits, one might be tempted to dismiss the book as grandstanding from a favourite soapbox. But it’s an eminently readable argument for a theory that can be intimidatingly rooted in complex math but is also at its basics just a product of old-fashioned nous. Take, for instance, Taleb’s peeve with modern mollycoddling, which he says is producing a very fragile human being. Extreme hygiene, by destroying the body’s natural hormetic reactions, becomes vulnerable. We counter it by ingesting probiotics, the good ‘dirt’ that we denied the body in the first place.

This is but one simple story. Taleb transposes it to politics, disaster management, urban planning, research, financial management and much more to propound his theory of antifragility. What he is saying is simple — we don’t need more and more complex graphs and grids that attempt to ‘predict’ what will come and thus build systems to face that supposed eventuality. The truth is we can never predict with any degree of accuracy a Black Swan event. It will always be sudden, random, huge, wildly destructive, and yes, totally unpredictable.

Managing risks

Risk management pros look to the past, using the worst known war, recession or tsunami to build the next higher sea wall. They don’t realise that the worst event always exceeded the worst one before it. What we really need are systems that can regenerate by using such unpredictable shocks to their advantage. Not systems that can survive the shock to some extent but those that can actively use the shock to become stronger. In other words, ‘antifragile’ systems. Much like what nature does — breeding the next gen mosquito to fight repellents. Nature works because evolution is antifragile. The gene pool uses periodic shocks to become more fit. In the tsunami example, thus, it makes more sense to put money into training people in survival and rebuilding tactics than to build higher and higher walls.

Taleb calls it learning to live in a world we must admit we don’t understand. He asks that we modify man-made systems so that they allow natural events to take their course, instead of smoothing out every little bump — Prozac for the smallest attack of the blues, warnings on coffee cups that tell you it might be hot enough to scald, hormone therapy for menopause. While the smoothening is done with the best of intent, it’s the classic soccer mom syndrome — the quest for a perfect, crisis-free world. Guess what, it doesn’t exist. Some discomfort makes us tough; removing every discomfort makes the species fragile.

That’s where the heading of this piece comes from — in trading jargon, when someone holds a ‘long gamma’ position, any movement in price is good news. In other words, long gamma means that which benefits from volatility or the non-linear. Excessive planning and smoothening are attempts to force something that’s predominantly non-linear into an easy linear graph, a simplification that distorts dangerously.

Taleb thus argues that depriving political and economic systems of natural volatility (non-linearity) — that is, making things artificially smooth — harms them more by leaving them unprepared when the biggie strikes. Take the turkey example. A turkey fattened for 1000 days imagines that life and the butcher love it. The turkey, its friends and family have absolutely no reason for 1000 days to doubt this. On the 1001 day, the Black Swan strikes. The most dangerous mistake the turkey made was to believe that the absence of evidence of harm meant the absence of harm.

The writer argues that the 2007 financial crisis was caused to a large extent because Alan Greenspan and his ilk wanted to iron out the boom-bust cycle and allowed small risks to hide (and accumulate) under the carpet — till finally they blew the economy up. Allowing small risks to swallow up companies periodically lets the economy weed out vulnerable players early on. It isolates the financially undisciplined companies from the rest of the economy, rather than finally transferring the burden of indiscipline from corporation to state.

What’s the solution? Taleb advocates the ‘barbell’ strategy — reduce extreme downsides from black swans. The upsides or positive black swans will take care of themselves. His tail risk hedging strategy is just this — telling investors how to be insured against extreme market movements. To simplify, a perfect barbell strategy for a flight would not be a crew that is uniformly cautiously optimistic. You actively want your pilots to be pessimistic like hell, while the flight attendants can be as cheery as they want.

Taleb’s barbell for the economy would be to nationalise banks but let hedge funds go unregulated. When Fannie Mae’s secret risk reports landed on Taleb’s desk, it showed that the corporation’s risk exposure consisted of some moves that brought small profits but opposite moves that brought massive losses. It was clearly a powder keg. And it blew up.

Formidably well read, Taleb segues from Seneca and Plato to Galbraith and Aquinas to Jewish and Islamic texts to make his point. Large corporations, big government, bankers, and politicians, they are all dismissed ruthlessly. As are copy editors, my own tribe. Taleb’s warnings about the imminent collapse of the banking system in The Black Swan invited much derision. Unfortunately, he was proven right. With that kind of hindsight, one is tempted to be in his corner on this one. And even if you disagree with some of his extreme positions, it’s such a darned good read you can’t put it down.

How to Live in a World We Don’t Understand: Nassim Nicholas Taleb; Penguin Books India Pvt. Ltd., 11, Community Centre, Panchsheel Park, New Delhi-110017. Rs. 899.